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Jordan Government Sacrificed as Anger Over Tax Law Roils Streets

(Bloomberg) -- The government of Jordan’s Prime Minister Hani al-Mulki resigned on Monday after anger erupted on the streets over a proposed tax law and other austerity measures.

King Abdullah II asked Omar Al Razzaz, who was education minister in the outgoing administration, to form a cabinet, according to the semi-official Al-Rai newspaper, which cited a royal decree.

Up to 18,000 demonstrators took part in protests that started on Wednesday after the government referred a controversial tax law to the lower house of parliament for endorsement. Security officials said 60 protesters were arrested.

Dissolving the cabinet has become the kingdom’s preferred response to potential crises. “Whenever there is a problem in Jordan, governments resign,” said economist Wajdi Makhamreh. “This is a joke and unacceptable.”

Makhamreh said he didn’t expect the protests to stop. “We do not need a change of personalities,” he said. “We need a change of policies and approach.”

The government had been attempting to pass the tax law under an International Monetary Fund-supported reform program in order to improve collection, curb evasion and boost revenue, with a target of 300 million dinars ($423 million) annually. The law increased the taxpayer base from 5 percent of Jordanians to 10 percent by lowering the threshold for taxable income. It also removed several exemptions given to families and households, and increased levies on banks, industries and other economic sectors.

The protests escalated on Thursday after prices of electricity and several types of fuel were hiked. The king suspended the increases but that wasn’t enough to appease protesters, who demanded the withdrawal of the tax law and the sacking of Mulki’s government. Talks with trade unions failed to find a solution.

Jordan, one of the smallest economies in the Middle East, is a net oil importer and relies on foreign investments and grants, including from the Gulf Cooperation Council, to support its public finances.

The rise in global commodity prices and the ongoing expense of housing refugees from conflicts in neighboring Syria and Iraq has stretched the nation’s finances, while assistance from the Gulf this year has been limited to a grant from Kuwait. The U.S. this year committed to give Jordan more than $6 billion in help over the next five years, up from the current $1 billion a year.

Jordan’s overall public debt rose to 94 percent of gross domestic product this year, from 95.3 percent in 2017. Economic growth should reach 2.2 percent in 2018, which is not enough to address unemployment at its highest in 20 years in a country whose population is growing at 3.1 percent annually.